Demand and Supply
by Jean Lee C. Patindol, 2011-12
by Jean Lee C. Patindol, 2011-12
The Economy
Government
ConsumersProducers
taxes
services
taxes
services
Produce goods and...
Firms and Households:
The Basic Decision-Making Units
 A firm is an organization that transforms
resources (inputs) into ...
Input Markets and Output Markets:
The Circular Flow
 The circular flow
of economic
activity shows
how firms and
household...
 Product or output
markets are the markets
in which goods and
services are exchanged.
 Input markets are the
markets in ...
Input Markets and Output Markets:
The Circular Flow
 Goods and servicesGoods and services flowflow
clockwise. Firms provi...
Input Markets
 Input or factor markets are the markets in which
the resources used to produce products are
exchanged. The...
Product/Output Markets
 are the markets in which goods and
services are exchanged.
 Demand for outputs/products
 Supply...
Demand in Product/Output
Markets
 Factors influencing willingness and ability to buy (determinants of
demand):
 Price of...
 Quantity demanded (Qd) – the quantity of a
good that consumers are willing and able to buy
at a particular price, ceteri...
Demand Schedule for Super Cola
Price (in pesos per unit) Qd (in million units)
9 1
8 3
7 5
6 7
5 9
4 11
3 13
by Jean Lee C...
Price
(P), in
pesos
per
unit
0
Quantity demanded (Qd), in
million units
A
B
C
G
Qd
Demand (demand
curve or
schedule)
movem...
The Law of Demand
 As the price of a good decreases/increases,
ceteris paribus, the quantity of that good that
consumers ...
Supply in Product/Output
Markets
 Factors affecting willingness and ability to produce and sell (supply
determinants):
 ...
 Quantity supplied (Qs) – the quantity of a good
that producers are willing and able to produce
and sell at a particular ...
Supply Schedule for Super
Cola
Price (in pesos per unit) Qs (in million units)
9 10
8 9
7 8
6 7
5 6
4 5
3 4
by Jean Lee C....
Price
(P), in
pesos
per
unit
0
Quantity supplied (Qs), in
million units
A
G
Qs
Supply (supply
curve or
schedule)
movement
...
The Law of Supply
 As the price of a good decreases/increases,
ceteris paribus, the quantity of that good that
producers ...
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Demand and supply

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Demand and supply

  1. 1. Demand and Supply by Jean Lee C. Patindol, 2011-12
  2. 2. by Jean Lee C. Patindol, 2011-12 The Economy Government ConsumersProducers taxes services taxes services Produce goods and services, Receive payments Make payments, Receive goods and services
  3. 3. Firms and Households: The Basic Decision-Making Units  A firm is an organization that transforms resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.  An entrepreneur is a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.  Households are the consuming units in an economy. They also provide the inputs in an economy. by Jean Lee C. Patindol, 2011-12
  4. 4. Input Markets and Output Markets: The Circular Flow  The circular flow of economic activity shows how firms and households interact in input and output markets. by Jean Lee C. Patindol, 2011-12
  5. 5.  Product or output markets are the markets in which goods and services are exchanged.  Input markets are the markets in which resources—labor, capital, and land—used to produce products, are exchanged. by Jean Lee C. Patindol, 2011-12
  6. 6. Input Markets and Output Markets: The Circular Flow  Goods and servicesGoods and services flowflow clockwise. Firms provideclockwise. Firms provide goods and services;goods and services; households supply laborhouseholds supply labor services.services. • PaymentsPayments (usually money)(usually money) flow in the oppositeflow in the opposite direction (counterclockwise)direction (counterclockwise) as the flow of laboras the flow of labor services, goods, andservices, goods, and services.services. by Jean Lee C. Patindol, 2011-12
  7. 7. Input Markets  Input or factor markets are the markets in which the resources used to produce products are exchanged. They include:  The labor market, in which households supply work for wages to firms that demand labor.  The capital market, in which households supply their savings, for interest or for claims to future profits, to firms that demand funds to buy capital goods.  The land market, in which households supply land or other real property in exchange for rent.  Inputs into the production process are also called factors of production. by Jean Lee C. Patindol, 2011-12
  8. 8. Product/Output Markets  are the markets in which goods and services are exchanged.  Demand for outputs/products  Supply of outputs/products by Jean Lee C. Patindol, 2011-12
  9. 9. Demand in Product/Output Markets  Factors influencing willingness and ability to buy (determinants of demand):  Price of the good  Non-price determinants:  Taste or level of desire for the good by the buyer  Income of the buyer  Normal Goods are goods for which demand goes up when income is higher and for which demand goes down when income is lower.  Inferior Goods are goods for which demand falls when income rises.  Prices of related products  Substitute products (directly competes with the good in the opinion of the buyer)  Complementary products (used along with the good in the opinion of the buyer  Future expectations  Expected income of the buyer  Expected price of the good  For the total demand: the number of buyers in the market by Jean Lee C. Patindol, 2011-12
  10. 10.  Quantity demanded (Qd) – the quantity of a good that consumers are willing and able to buy at a particular price, ceteris paribus (given all other things constant); a particular point in the demand curve or schedule; influenced only by price; movement along a curve  Demand (D) – the relationship between the price of the good and the quantity that consumers are willing and able to purchase in a specified time period, ceteris paribus; the entire demand curve or schedule itself; influenced by non-price factors; shift of the curve by Jean Lee C. Patindol, 2011-12
  11. 11. Demand Schedule for Super Cola Price (in pesos per unit) Qd (in million units) 9 1 8 3 7 5 6 7 5 9 4 11 3 13 by Jean Lee C. Patindol, 2011-12
  12. 12. Price (P), in pesos per unit 0 Quantity demanded (Qd), in million units A B C G Qd Demand (demand curve or schedule) movement Shift in demand A B C G Qd Demand (demand curve or schedule) by Jean Lee C. Patindol, 2011-12
  13. 13. The Law of Demand  As the price of a good decreases/increases, ceteris paribus, the quantity of that good that consumers are willing and able to buy increases/decreases  Price is the independent variable; Qd is the dependent variable  There is an inverse relationship between price and quantity demanded. by Jean Lee C. Patindol, 2011-12
  14. 14. Supply in Product/Output Markets  Factors affecting willingness and ability to produce and sell (supply determinants):  Price of the good  Non-price determinants:  Changes in number of producers  Resource prices (prices of the inputs necessary to produce the good)  Technological changes  Prices of other goods  Substitute  Complementary  Expectations of future prices  Natural bounty/ calamity  Government incentives/disincentives:  Subsidies (incentives)  Taxes (disincentives) by Jean Lee C. Patindol, 2011-12
  15. 15.  Quantity supplied (Qs) – the quantity of a good that producers are willing and able to produce and sell at a particular price, ceteris paribus (given all other things constant); a particular point in the supply curve or schedule; influenced only by price; movement along a curve  Supply (S) – the relationship between the price of the good and the quantity that producers are willing and able to produce and sell in a specified time period, ceteris paribus; the entire supply curve or schedule itself; influenced by non-price factors; shift of the curve by Jean Lee C. Patindol, 2011-12
  16. 16. Supply Schedule for Super Cola Price (in pesos per unit) Qs (in million units) 9 10 8 9 7 8 6 7 5 6 4 5 3 4 by Jean Lee C. Patindol, 2011-12
  17. 17. Price (P), in pesos per unit 0 Quantity supplied (Qs), in million units A G Qs Supply (supply curve or schedule) movement shift by Jean Lee C. Patindol, 2011-12
  18. 18. The Law of Supply  As the price of a good decreases/increases, ceteris paribus, the quantity of that good that producers are willing and able to sell decreases/increases.  Price is the independent variable; Qs is the dependent variable  There is a direct relationship between price and quantity supplied. by Jean Lee C. Patindol, 2011-12

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